I know, you might say: Accelerator? Corporate startup? We’ve got that already.
But let’s be honest, according to HBR 94% of the managers surveyed by McKinsey said they were dissatisfied with their company’s innovation performance. So why is that, when you’re already doing it right?
Fundamentally, a startup within a company is the same as one in a garage: a group of entrepreneurs trying to make the world better using new ideas and inventions.
While to some extent the term “corporate startup” is self-explanatory, let me elaborate what is meant by it.
When talking about corporate startups, we focus on an innovation process inside companies. It is one of many types of entrepreneurship. But first, let’s focus on what’s meant by innovation:
Innovation is often also viewed as the application of better solutions that meet new requirements, unarticulated needs, or existing market needs.
In economics, management science, and other fields of practice and analysis, innovation is generally considered to be the result of a process that brings together various novel ideas in such a way that they affect society.Wikipedia
When it comes to corporate startups, the focus is specifically on adjacent and transformational innovation. In other words, looking at innovation targeting new customer markets and/or new solutions.
“Managing Your Innovation Portfolio” introduces the “Innovation Ambition Matrix.” Corporate startups focus on the top right half of the matrix, the adjacent & transformational aspects.
The core section is typically already well covered by R&D.
Can a Corporate Startup work?
Entrepreneurship is the process of designing, launching and running a new business, which is often initially a small business, or as the “capacity and willingness to develop, organize and manage a business venture along with any of its risks to make a profit.”Wikipedia
In other words, an entrepreneur, by definition is an individual the takes existing resources to innovate and create something new- to generate economic value. Traits of the entrepreneur? Innovation, risk-taking, self-efficiency, opportunity recognition, ability to exploit opportunities, strong locus of control.
What is a start-up? An early–stage venture founded by an entrepreneurial individual. A startup venture is typically distinguished from an SME or lifestyle business by its degree of innovation, disruptive capacity and…you guessed it, providing (new) economic value.
What distinguishes a startup founder from an entrepreneur? The only difference comes down to that a startup founder is currently running an early-stage venture. Does that still make him and entrepreneur? Yes.
The only distinguishing factor is that an entrepreneur could have a few startup ventures, some which have grown, some which he may have exited. He may still be running his original ‘startup’- but it has grown, and can no longer be called as such. The entrepreneur actively looks for new opportunities to exploit.
Hence- the differences are temporal, and have to do with size, scale and time- of the venture NOT the individual.
So yes, corporate startups can work, why not. You need the right people with the right mindset (which is crucial) and processes.
I’d like to note though that I see it as very important to protect startup and corporation from each other.
There is a “But”
Startups can exist and thrive inside companies, but it is important to acknowledge that the tools and processes are very different.
A startup is typically financed by venture capitalists. It needs to figure out the right mechanisms to value and fund these activities, especially since a startup’s time horizon is much longer than the next annual operating budget.
In contrast, startups in corporations need to convince management of the viability of the new venture. Here it is important to note that it is not only the stand-alone value that is up to valutation, but also the associated enablement value.
This small detail is important when making a go / no-go decision for a corporation because it needs to stay focussed on the core business. Each diversification comes with an associated cost.
Corporate Startups – Transformational Innovation or Obsolescence
Finally, I’d like to make one final point to executives: not only CAN you do this, but your organizations MUST engage in corporate entrepreneurship to remain relevant or you will be obsolete in some years.
The chart above shows both the acceleration of companies disappearing from the S&P 500 as well as their forecast for this trend to accelerate.
While there are a number of reasons for this, the primary one is that the rate of change is accelerating and so transformational innovation is key. Put another way, the things that got your company to its current position in the marketplace will not keep it successful indefinitely.
In the first HBR article mentioned above, in which they set up the Innovation Ambition Matrix, the authors acknowledge there is no “golden ratio”. However, they go on to suggest a good starting point is a minimum of 20% investment in adjacent innovation and 10% in transformational innovation. Interestingly, in follow up research focused just on “high performers that invest in all three levels of innovation” they explain:
Of the bottom-line gains companies enjoy as a result of their innovation efforts, what proportions are generated by core, adjacent, and transformational initiatives?
We’re finding consistently that the return ratio is roughly the inverse of that ideal allocation described above: Core innovation efforts typically contribute 10% of the long-term, cumulative return on innovation investment; adjacent initiatives contribute 20%; and transformational efforts contribute 70%
In other words, to avoid disappearing like your peers on the S&P 500, you need to invest in adjacent and transformational innovation by creating corporate startups.
If you want help building your own corporate startup capabilities, the feel free to explore our webpage further.